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In its judgment of 18 January 20161, the Svea Court of Appeal overturned the Stockholm District Court’s judgment and approved the Russian Federation’s plea for negative declaratory relief. Contrary to the Stockholm District Court, the Svea Court of Appeal found that the arbitral tribunal lacked jurisdiction to adjudicate the claim made by Spanish investors against the Russian Federation originating from the alleged expropriation of the Spanish investor’s investments in Yukos Oil Company. The Svea Court of Appeal arrived at its conclusion by interpreting the provisions in the underlying bilateral investment treaty (“BIT”) between the Russian Federation and Spain. The Svea Court of Appeal found that when the relevant dispute-resolution clause (article 10) in the BIT is interpreted in accordance with article 31 and 30 of the Vienna Convention on the Law of Treaties (“the Vienna Convention”), it only covers jurisdiction over issues relating to the amount, or method of payment, of compensation paid in the event of an expropriation, and not over the issue as to whether expropriation of an investment has occurred or not. The Russian Federation lodged the plea for negative declaratory relief with the Stockholm District Court in 2009 while the arbitration procedure was still ongoing. An award on the merits against the Russian Federation was delivered by the arbitral tribunal in 2012, while the parallel proceeding with the Stockholm District Court dismissing the Russian Federation’s plea for negative declaratory relief was not concluded until 2014. The Russian Federation appealed the Stockholm District Court’s decision, to the Svea Court of Appeal, which contrary to the Stockholm District Court found that the arbitral tribunal lacked jurisdiction over the investor-state dispute at hand. The Spanish investors have until the 15 of February 2016 to appeal the Svea Court of Appeal decision to the Swedish Supreme Court. If they choose not to, or if the request for appeal is not heard or granted, the currently pending but stayed set aside proceedings in Sweden, will be continued. To the extent that the arbitral award is not covered by a valid arbitration agreement, it will most certainly be set aside.

THE BACKGROUND TO THE DISPUTE

In 2007 Spanish investment companies initiated arbitral proceedings against the Russian Federation, administered by the Arbitration Institute of the Stockholm Chamber of Commerce, seeking compensation for alleged lost investments in the Russian oil company Yukos under the Russia-Spain BIT. Yukos was subject to substantial tax increases as a result of Russian tax revisions and when the company was unable to pay the incremental taxes, it was declared bankrupt in 2006 and its assets were seized and sold off. According to the Spanish investors the bankruptcy and seizure of Yukos was carried out by the Russian government for political reasons and the measures amounted to an expropriation. On 25 March 2007 the Spanish investors commenced arbitration against the Russian Federation. In 2009 the arbitral tribunal found that it had jurisdiction over the dispute and in 2012 the arbitral tribunal delivered a final award on the merits, unanimously stating that the Russian Federation was guilty of expropriation and ordered Russia to pay compensation in accordance with the BIT.

THE REASONING OF THE SVEA COURT OF APPEAL

Since the disagreement of the parties concerned the interpretation of the provisions in the BIT regarding the jurisdiction of the arbitral tribunal, the Svea Court of Appeal made its own interpretation applying the Vienna Convention. According to the Vienna Convention, interpretation should be made with the wording of the relevant provision as a starting point. If the wording is unclear, consideration should be given to factors such as object and purpose in order to understand the ordinary meaning of the BIT and provisions therein. By pointing to the wording of the relevant provisions regarding arbitral tribunals’ jurisdiction over investor-state disputes in situations where the host state has expropriated investments, the Svea Court of Appeal came to the conclusion that: “…article 10 of the Treaty does not include an examination of whether expropriation has taken place.[…] this interpretation neither leaves room for any remaining ambiguity or obscurity regarding the meaning of the article nor leads to a result that is manifestly absurd or unreasonable.”2 Article 10 states that: “1. Any dispute between one Party and an investor of the other Party relating to the amount or method of payment of the compensationdue under article 6 of this Agreement, […] may be referred to […]: – An arbitral tribunal […].” (emphasis added) According to the Svea Court of Appeal the wording of article 10 of the BIT is clear insofar as it limits an arbitral tribunal’s jurisdiction to disputes relating to the amount or method of payment of compensation in the event of expropriation. The Svea Court of Appeal reasoned that it is clear that the reference to article 6, is only aimed at the last part of article 6 which relates to the compensation an investor is entitled to in the event of expropriation or similar measure, and not the first part which states under which circumstances expropriation may be carried out by the host state. “Any nationalization, expropriation or any other measure having similar consequences taken by the authorities […]shall be taken only on the grounds of public use and in accordance with the legislation in force in the territory. Such measures should on no account be discriminatory. The Party adopting such measures shall pay the investor or his beneficiary adequate compensation, without undue delay and in freely convertible currency.” Accordingly, the jurisdiction that follows from article 10, read in conjunction with article 6, only covers issues relating to the amount, or method of payment, of compensation, and not the question of whether an expropriation or similar measure had occurred.3 Even so the Svea Court of Appeal moved on to examine the arguments of the investors’ that were focused on the object and purpose of the BIT. The Svea Court of Appeal however dismissed the arguments since the investors failed to convincingly show that an interpretation of the object and purpose of either the BIT as a whole, or the dispute-resolution clause in particular, meant that the arbitral tribunal’s jurisdiction included an examination of whether expropriation had occurred. The Svea Court of Appeal also dismissed the investors’ arguments that a MFN-clause in the BIT meant that the dispute resolution clauses in Russia’s other BIT’s gave the arbitral tribunal jurisdiction over the dispute. The standard included in the MFN-clause – “fair and equitable treatment” – was not considered to amount to an unconditional right for investors to have their case heard by an international arbitral tribunal. The investors nevertheless argued that they would not receive fair proceedings in a Russian court. These arguments were however dismissed by the Svea Court of Appeal since the investors failed to produce any proof supporting this claim.4

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